Bangladesh Bank’s new master circular: Can revised ICMSME financing boost Bangladesh’s manufacturing?

Bangladesh Bank published a new master circular on 17 March 2025, to enhance financial support for informal, cottage, micro, small, and medium enterprises (ICMSMEs). Several new provisions have broadened its scope compared to the 2019 circular. Emphasis has been placed on digital financing and artificial intelligence, and for the first time, informal enterprises have been formally recognised.

The circular also includes finance companies (FCs) instead of only financial institutions, expands the investment and credit limits—particularly for services and trading—and redefines service industries in line with the National Industrial Policy 2022 and the central bank's CIB Batch Contribution User Guide. 

While it introduces welcome reforms—such as recognising informal enterprises, adjusting loan criteria, and prioritising underserved groups—the success of these measures will depend heavily on effective implementation, simplified procedures, and consistent engagement from banks and financial companies.

The criteria for identifying women entrepreneurs have been revised. A woman will now be recognised as an entrepreneur if she holds a 20% share in a registered company and serves as the managing director, chief executive officer, executive director, or chairperson of the board. Alternatively, a firm qualifies if a woman holds at least 20% ownership and 51% of its permanent employees are women (clauses 1.6.3 and 1.6.4 of the circular). These changes bring the definition closer to the ISO standard and are likely to increase women's participation. 

The circular introduces a new category of informal entrepreneurship, capped at a credit limit of Tk5 lakh and consisting of no more than 10 family members. These businesses must meet several conditions under the National Industrial Policy 2022, including obtaining a Unified Business Identification (UBID) and a Digital Business Identification (DBID), as per the Digital Commerce Operation Guideline 2021 from the Ministry of Commerce. In addition, entrepreneurs with a Personal Retail Account (PRA), as stated in clause 1.9, will be treated as informal enterprises.

However, the process for recognising and funding these informal enterprises remains unclear. Banks and finance companies are still reluctant to accept UBID and DBID as alternatives to trade licences, creating confusion for entrepreneurs trying to access funding.

The concept of peer organisations has been introduced in the new circular. These are finance companies that support each other and operate under the Bank and Finance Company Act 2023, within the framework of the Bank Company Act 1991. However, the process for accessing services from peer organisations remains poorly defined, making it difficult for CMSMEs to understand their role or how to engage with them.

The circular also offers a clear definition of business clusters and includes a list of 177 clusters identified by the SME Foundation, which are eligible for financing. Additional clusters may be defined by the government or by banks and finance companies themselves. Yet, the application process for these clusters to access loans has not been specified, leaving a critical gap in implementation.

Compared to the 2019 master circular, the increase in credit limits across all sectors is a welcome development. However, the inclusion of trading as a formal sector—absent in the National Industrial Policy 2022—marks a departure from existing policy, with no clear source cited for this classification. 

Both the trading and service sectors appear to have been prioritised. In the case of medium manufacturing enterprises, the maximum loan or investment limit has been set at Tk100 crore. Excluding land, factory, and replacement costs, the required permanent asset base ranges from Tk15 crore to Tk50 crore, with a manpower threshold of 121 to 300.

In contrast, medium service enterprises require assets worth Tk2 crore to Tk30 crore and a workforce of 51 to 120 to qualify for loans up to Tk75 crore. For medium trading enterprises, eligibility requires a turnover between Tk20 crore and Tk50 crore, 31 to 100 employees, and assets worth Tk2 crore to Tk15 crore.

The comparatively lenient requirements for service and trading sectors suggest a policy tilt that may disincentivise investment in manufacturing. This imbalance is concerning, given the manufacturing sector's essential role in employment generation and industrial growth.

For getting loans in the manufacturing sector, conditionalities are much more stringent than those in the services and trading sector, which  is clear testimony to discourage enterprises from investing in the manufacturing sector, rather encouraging them to invest in the trading and services sector which needs less investment and manpower. 

However, the role of the manufacturing sector is crucial in the country. Bangladesh is seriously in need of creating new employment; as per the Economic Census 2024, there is a significant drop in the increase of the manufacturing sector. Even though the number of manufacturing units increased slightly, the growth reduced from 11.5% in 2013 to 8.7% in 2024, which was 12.14% in the economic census of 2001 and 2003 (BBS Economic Census 2024).  

Policies should be in favour of establishing more manufacturing industries; the present transformation of geopolitical and protectionist culture in the West and developed countries means the export-led growth economy of Bangladesh  must be supported by a strong manufacturing base. 

Small, micro, and cottage industries have varying asset, manpower and turnover requirements. For informal enterprises, the asset threshold is Tk5 lakh, with loans capped at the same amount. These businesses typically involve household members—no more than 10 for informal and 15 for cottage enterprises—making it difficult to receive external help. If the aim is to formalise them gradually, the definition should be simplified.

Despite their strong repayment record, micro and cottage entrepreneurs remain underrepresented in loan disbursements. Medium and small enterprises receive the bulk of CMSME funds, leaving smaller players marginalised.

Clause 2.2 of the circular outlines credit policies for groups of companies. While the definition follows the Banking Regulation and Policy Department guidelines, it is not easily accessible to smaller enterprises. At present, larger companies dominate the benefits of group status.

Clause 2.3 restricts total CMSME credit sourced from multiple banks or finance institutions to a fixed ceiling. This may hinder expansion for businesses with legitimate growth prospects.

The circular sets an ambitious CMSME credit disbursement target: 25 percent by end-2025 and 27 percent by 2029, with a new 10 percent target for cluster financing. However, past trends show that banks and finance companies often fall short due to rigid conditions.

Although the circular acknowledges that many areas lack SME banking infrastructure, it bars refinancing support for loans routed through microfinance institutions (MFIs) or peer organisations. This may discourage these entities from extending credit—despite their wide rural reach. Bangladesh Bank should reconsider this restriction to expand financial inclusion for underserved CMSMEs.

The master circular introduces group-based loans for cottage and micro entrepreneurs, allowing 5–10 individuals to apply collectively. However, each member must submit a separate application supported by a CIB report. If any applicant is a loan defaulter, they will be disqualified. To ensure transparency, banks and finance companies are required to notify group members through mobile financial services (MFS), digital financial services (DFS) or other apps. This could serve as an effective model for digital financial literacy. With platforms like bKash already popular, simple digital processes could significantly boost outreach.

Banks and finance companies are instructed to develop their own strategies to meet CMSME credit targets. Each institution must have a dedicated SME Credit Risk Management unit. These divisions will focus on identifying new loan products, increasing the use of MFS and DFS, supporting e-commerce and f-commerce, training manpower, and adopting tools like QR codes and chatbots. Regular training (Clause 6.3.1) is also mandated to help CMSMEs grow in the digital marketplace.

The circular highlights inclusive financing, prioritising loans for the physically challenged, third gender, and underprivileged entrepreneurs (Clause 6.2). Loan denial records must now be preserved for three years instead of five (Clause 7.5), reducing documentation burdens as digital systems expand.

Separate provisions have been outlined for interest and profit rates under different schemes. Refinancing, agent banking, and MFI policies will follow the respective regulatory bodies. Notably, CIB fees for CMSME loans up to Tk10 lakh have been waived.

The circular is forward-looking—emphasising digital access, inclusive financing, and broader coverage. However, successful implementation will depend on time-bound strategies, institutional coordination, and keeping stakeholders consistently informed.

Ferdaus Ara Begum. Sketch: TBS

Ferdaus Ara Begum is the CEO of BUILD, a public-private dialogue platform that works for private sector development.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.